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Sovereign ratings, foreign direct investment and contagion in emerging markets: Does being a BRICS country matter?
Author(s) -
Emara Noha,
El Said Ayah
Publication year - 2021
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.2062
Subject(s) - foreign direct investment , economics , latin americans , sovereignty , financial crisis , emerging markets , international economics , panel analysis , monetary economics , contagion effect , panel data , macroeconomics , political science , politics , econometrics , law
Using dynamic panel System GMM for 24 EMs over the period 1990–2018, we analyse how changes in sovereign ratings affect FDI inflows to EMs. The study also estimates the contagion effect of a ratings change among any of the BRICS countries on three regions, Europe, the Middle East, and Africa (EMEA) and Latin America and Asia. Third, we estimate the impact of a ratings change on FDI inflows in the presence of two types of crises, the 2007–2009 global financial crisis as well as country‐specific crises. The results suggest that sovereign ratings have a statistically significant impact on the flow of FDI to EMs and that the BRICS countries as a bloc exert a statistically significant contagion impact on the FDI inflows into the three regions examined. We also find that the impact of sovereign ratings change on FDI inflows increases in crisis times, both country‐specific, as well as the global financial crisis.